By: Craig W. Roggow
This article and educational/training video presentation was created as an assignment for Merger and Acquisitions: Due Diligence Report, MGT 635, Week 6 Project, Option 2—Antitrust Comparison; from the course study guide (pg 157) and text book, Mergers, Acquisitions, and other Restructuring Activities, 6/E (DePamphilis, 2012). This multimedia presentation identifies two separate antitrust cases involving two different companies, describes each corporation, compares and contrasts, finds key themes or differences, and lastly, delineates the outcome pros and cons. In this review we learn that while companies may struggle to gain dominate control over their respective industry, attempting to create an unfair monopoly is not a solution for corporate success. Moreover, many companies intentionally or unintentionally implement strategies or policies to prevent their competitors form thriving in the market. Such self-interest is seen as selfish and monopolistic.
Keywords: monopoly for self-interest, wilk vs. american medical association, ama, rambus vs. micron technology, monopolistic strategies
Monopoly for Self-Interest
While a company may struggle to gain dominate control over their respective industry, attempting to create a monopoly is not a solution for their corporate success.
Purpose of post
Many companies intentionally or unintentionally implement strategies or policies to prevent their competitors form thriving in the market. Monopolistic strategies by companies in most cases never win, provided the interests are selfish gains. To explore this subject, two separate antitrust cases are discussed in detail.
Overview of post
This post identifies two separate antitrust cases involving two different companies. The first case discussed in the U.S. was that of Wilk vs. American Medical Association (AMA) found within the medical industry. This was a federal antitrust suit brought against the American Medical Association and 10 co-defendants by the Chiropractor, Chester A. Wilk. The second antitrust case is that of Rambus vs. Micron Technology, which is found within the high-tech industry.
Objectives of the post
- Identify two separate antitrust cases and the potential effects on their respective industry; describing each company, market, and antitrust case against them.
- Compare and contrast the cases, finding key themes or differences.
- Identify the pros and cons from the outcomes of these two antitrust cases.
Identifying two separate antitrust cases and the potential effects on their respective industry; describing each company, market, and antitrust case against them:
Wilk vs. American Medical Association (1st case)
In the U. S. health care system, chiropractic’s is the practice concerned with identification, treatment, and avoidance of disorders affecting the neuromuscular-skeletal system (Murphy et al, 2008). Chiropractic’s also deals with the effects arising from neuromuscular-skeletal system in general health. This profession is also classified as complementary and alternative medicine or CAM. Chiropractors use manual therapy as the main treatment technique. Chiropractors have gained greater approval and legitimacy among medical physicians and insurance providers. And, with the rise of baby boomers the demand for such services is likely to rise (Murphy et al, 2008).
The chiropractic profession is dominated by self-governing practices, small size practices with typically only one location. A significant percentage of practitioners in the industry are nonemployees or corporations, comprising of just the chiropractor without additional employees. This industry historically has been fragmented despite the growth of larger firms entering the industry. Although high patient satisfaction remains the chief strength of chiropractic’s, there is high competition coming from physical therapists. One promising element of the market is that the U.S. population is aging, and this is seen to increase the demand for therapies intended to improve the patients’ life quality. Some therapies include and are intended to improve neck and back pain through affordable wellness activities (Murphy et al, 2008).
Furthermore, by 2017 it is expected that the industry will be revitalized by the increasing health care reform bills and demographic trends. It has been estimated that 78% of all chiropractors employ less than five employees and 98% of those practices gross less than $1 million in annually revenues (Noto, 1999).
On the other side, the American Medical Association is largest and a most powerful physician organization. This professional organization was very influential within the healthcare industry at the time. The goal of this organization was to provide affordable health insurance to all people (Noto, 1999). The organization also adhered to the belief that health care should be provided through private markets. Moreover, the AMA did not believe that the expansion of health insurance would be achieved by establishing public health insurance options for non-disabled persons under the age of 65 years (Noto, 1999). In addition, the AMA filed a proposal to limit patients’ choice, which would drive out private insurers who offer more than 70% coverage on Americans. Despite the rising number of physicians in the past three decades, AMA membership had declined. Subsequently, this resulted in less overall AMA participation. This trend affected both the AMA and the state and county communities (Noto, 1999).
In October 1976, Chester Wilk and four other chiropractors filed a lawsuit against the AMA. This suit also included other U.S. prominent medical groups; including the American Hospital Association, American College of Surgeons, among others (Painter, 2012). In the suit, chiropractors claimed that AMA had participated in illegal schemes to destroy them, and the AMA was charged and subsequently found guilty. The AMA had held that medical doctors were not allowed to associate with chiropractors and other unscientific practitioners; such was seen as “unprofessional” and unethical (Painter, 2012). This view was supported by the AMA principle of medical ethics, prior to 1980, which required that physicians not associate with persons who violated that principle. The AMA saw chiropractors as competitors within healthcare and participated in several schemes to remove them from the market. Subsequently, the AMA was found to have undermined their schools, concealed evidence of effective chiropractic care, promoted activities in support of the AMA as a monopoly in the U.S. health care industry.
Additionally, the AMA tried to portray chiropractic’s as ineffective, despite proof to the contrary that chiropractors were twice as effective as the medical doctors (Painter, 2012). The settlement of suit required the AMA to stop efforts of constraining professional chiropractors and AMA members. Chiropractors were then then allowed to practice in hospitals.
Rambus vs. Micron Technology (2nd case)
Rambus was founded in the 1990’s, and is an American technology licensing company. Rambus patented products for different companies. The share price for this company had risen steadily. By 2010, the company’s share was between $20 and$24 which gave it a strong market capitalization value of about $2.5 billion (Brodkin, 2011).
On the other side, Micron Technology was an American multinational corporation founded in the US. The reputation of this company was great, given its production of semiconductor devices like DRAM, SSD, SDRAM and CMOS. In 2010, the company’s profit rose to $1.58 billion with a total equity of $8.02 billion. In 2010, Micron Technology had a market share of 2.3% and ranked 9th with $7,344 million in revenue. In 2009, the company had a market share of 1.9% and ranked 13th with $4,293 million revenue. The company showed tremendous growth in the semiconductor industry in the U.S. and internationally. The majority of its market is in the U.S. (Brodkin, 2011).
Originally, Rambus concentrated on developing RDRAM chips but now concentrates on technology licensing. This meant that the money generated by Rambus was from the licensing of product patents from manufacturing companies (Brodkin, 2011). Rambus, in its litigation strategy, had a retention policy against patent infringers. According to Rambus, Micron Technology had intentionally constrained the availability of its RDRAM, keeping its prices high as compared to competitors, while unnaturally retaining low prices for competitive DDR. However, Micron Technology managers argued that the designs by Rambus had flaws, which required higher manufacturing prices, increased latency, manufacturing complexity, and power dissipation associated as heat (Brodkin, 2011). Rambus business practices were also associated with the poor market gain for RDRAM. During the proceedings, Rambus destroyed all documents and backup tapes that would have provide evidence. In this case, Rambus was found guilty for intentionally destroying evidence and declared some of its patents as unenforceable.
Compare and contrast the cases, finding key themes or differences:
In both cases, the defendants were seeking to gain monopoly in their respective industries. In case one, the AMA attempted to remain the sole provider of health care services by eliminating chiropractors from the market. In case two, Rambus wanted to remain the sole producer of chips. However, in the end both the AMA and Rambus lost.
With the AMA antitrust case, the affected industry is the healthcare sector, while in Rambus vs. Micron Technology it is the high-tech or digital communications industry (Lender & Jason, 2011). Companies within any industry are prevented from establishing laws and practices aimed at giving them the authority to control prices or production of commodities. In antitrust law suits, evidence should not be destroyed or altered with. Any alterations would make one appear guilty of the filled offense. This was the case with Rambus, which had destroyed evidence. Despite destroying evidence, Rambus was not issued with a production termination sanctions (Lender & Jason, 2011).
Identify the pros and cons from the outcomes of these two antitrust cases:
Micron Technology and chiropractors were provided with the opportunity to carry on with their business, as they had committee no wrongdoing. Chiropractic’s were identified, positively for their contributions within the neuromuscular-skeletal area. With collaboration between medical doctors and chiropractors, the profession is gaining more credibility and respect with the U.S. health care system. Micron Technology showed evidence of good designs that utilized inexpensive production costs, did not have increased latency with little power dissipation as heat. The reputation of both chiropractic’s and Micron Technology were enhanced ultimately increasing market acceptance and market share.
The AMA lost reputation and was required to remove the principle requiring medical doctors not to associate with chiropractic’s. The relationship between medical doctors and chiropractors was initially strained. Chiropractic’s can freely practice anywhere within the USA as they have the permit to do so provided they are licensed. Rambus lost compensation for its deteriorating quality of RDRAM. The SDRAM market has gained high reputation and is continually on the rise. Some patents by Rambus were illegitimated and withdrawn.
Summary of key points
As pointed out in the thesis, while a company may struggle to gain dominate control over their respective industry, attempting to create an unfair monopoly is not a solution for their corporate success. Most companies attempt to gain monopolies for selfish profits and price control gains. This is evident in the antitrust case against the AMA and that against Rambus. While the AMA wanted to control the medical industry, Rambus wanted to control the licensing and chip production within the digital high technology industry. However, due to destruction of evidence, Rambus loses compensation.
Key learning and recommendations
Destroying evidence to evade conviction is not a good defense strategy in an antitrust case against Rambus. Rambus wanted to remain a technology licensing and microchip producer. The AMA wanted its members to be able to provide professional care to patients. With research and development, all companies are likely to increase products quality, and reduce their prices. Monopolistic companies may violate principles like price control at the expense of consumers while locking out competitors (Pealstein & Bloch, 2003).
- Brodkin, J. (2011). Rambus loses $4 billion antitrust suit filed against memory chip makers. Received from http://arstechnica.com/tech-policy/2011/11/rambus-loses-4-billion-antitrust-suit-filed-against-memory-chip-makers/
- DePamphilis, D. M.(2012). Mergers, acquisitions, and other restructuring activities, 6/e, San Diego: Academic Press.
- Lender, D. and Jason, B. (2011). Micron Technology, Inc. V. Rambus. Retrieved from http://www.weil.com/micron-tech-inc-v-rambus-inc/
- Murphy, D., Schneider, M., Seaman, D., Perle, S., and Nelson, C. (2008). How can chiropractic become a respected mainstream profession? Chiropractic and Osteopathy Journal.Vol. 16.Iss. 10.
- Noto, Y. (1999). American Medical Association, AMA and its membership strategy. Retrieved from www.hsph.harvard.edu/research/takemi/files/rp157.pdf
- Painter, F. (2012). The Chiropractic Antitrust Suit Wilk et al vs. the AMA, et al. Retrieved from http://www.chiro.org/Wilk/
- Pealstein, D. and Bloch, R. (2003). Antitrust law developments. ABA web store, USA.